January 9, 2012

 

Canadian wheat futures gathering interest

 

 

Much buzz surrounds the new wheat, durum and barley futures contracts on the ICE Futures Canada trading platform that will be launched on January 23.

 

The Canadian government passed legislation in December ending the Canadian Wheat Board's longstanding single-desk marketing powers for western Canadian wheat, durum, and malting barley as of August 1, 2012.

 

As the legislation moved forward over the latter half of 2011, Winnipeg-based ICE worked in conjunction with industry participants to develop futures contracts for use under the new open market.

 

ICE Futures Canada president Brad Vannan said the new futures have been generating "considerable interest" from many potential market participants including grain companies, commission houses, speculators, farmers, and international industry participants in Europe and the US.

 

The new contracts, he noted, are similar to the already successful canola contract offered by the exchange.

 

A well functioning futures market is an important tool for pricing grain in advance, as it will eliminate some of the price risk and will allow the supply chain to operate much more efficiently, said Vannan.

 

There are already US-based wheat contracts in Chicago, Kansas City and Minneapolis, but Jerry Klassen, manager of the Winnipeg office for Swiss-based GAP SA Grains and Produits, was confident the new Canadian futures would also be successful. The Canadian wheat crop, he said, was large enough to bring in both commercial and speculative interest to the futures market.

 

Klassen expected the liquidity of the new wheat futures would eventually be augmented by spreading against the durum futures and also by spreading against the US wheat contracts.

 

Ron Frost, of Frost Forecast Consulting in Calgary, said the viability of the new futures contracts will depend on whether or not enough interest is generated to provide a liquid market.

 

"We need to get it up and going and we need to get liquidity," said Frost, adding "that requires everybody sticking their toe in and putting a little into it."

 

From a Prairie farmer's perspective, Frost said producers were not really thinking about the futures just yet, given the newness of the changes to the marketing reality.

 

However, he said, a viable, liquid market priced in Canadian dollars and using Canadian delivery points would definitely provide benefits for Prairie farmers over and above the closest alternative hedging options in the US.